Asset Allocation – Choosing Conservative, Balanced and Growth Portfolios

What this page covers: what asset allocation is, why it matters for risk and return, example portfolios for different risk levels, how to implement them with funds and ETFs, and how to rebalance over time.

What is asset allocation?

Asset allocation is the way you divide your portfolio among major asset classes such as stocks, bonds and cash. Instead of focusing on individual picks, you decide how much of your overall portfolio should be in each bucket – for example, 60% stocks and 40% bonds, or 80% stocks and 20% bonds.

The goal is to create a mix that fits your time horizon, your risk tolerance and your financial goals. Your allocation does not need to be perfect, but it should be intentional. On Investing 101 we introduce this idea; here we go deeper and show practical examples.

Why asset allocation matters more than stock picking

Research and real-world experience both suggest that your long-term results are driven more by your overall mix of stocks, bonds and cash than by which individual stocks you choose. That is because:

Stocks and bonds behave differently across market cycles.
A higher stock allocation usually means higher potential returns, but also higher volatility.
Bonds and cash can cushion downturns but may grow more slowly.

In other words, two investors who both own broad stock and bond funds but in different proportions can have very different experiences, even if they never pick a single stock.

Our page on Risk, Return and Diversification looks at how these trade-offs show up in practice. Asset allocation is how you decide where you want to sit on that spectrum.

Rule of thumb: start by choosing a target mix of stocks, bonds and cash that you can live with in a bad year, not just in a good year. Then choose specific funds to match that mix.

Key factors that shape your mix

There is no single “correct” portfolio for everyone. Instead, your allocation is shaped by a few key factors:

1. Time horizon

How long will the money stay invested before you need to spend it? Longer horizons generally allow for higher stock allocations, because you have more time to ride out downturns.

2. Risk tolerance

This is your emotional comfort with volatility. If a 20–30% decline would make you feel panicked or force you to sell, a very aggressive mix is unlikely to be sustainable. The discussion on Risk, Return and Diversification can help you think about this realistically.

3. Risk capacity

Risk capacity is about your financial situation rather than your feelings. Someone with stable income, low debt and many years to retirement may be able to take more risk than someone close to a major expense or with very limited savings, even if they feel similarly about volatility.

4. Goals and constraints

Saving for a house deposit in five years is different from building retirement savings over 30 years. Shorter-term goals often call for more bonds and cash; longer-term goals can tolerate more stocks. Some accounts also have rules or tax features that influence which investments make sense where.

5. Behaviour and experience

Finally, consider how you have reacted to volatility in the past. There is no point choosing a “textbook” aggressive portfolio if you are likely to abandon it at the worst possible moment. A slightly more conservative mix that you can actually stick with can be better than an aggressive mix you regularly change.

Example portfolios: conservative, balanced and growth

The labels “conservative”, “balanced” and “growth” are used widely in the investing world. They are not rigid categories, but they are a useful way to think about risk levels. Below is a simple illustration of three portfolios that use only stocks, bonds and cash.

Profile	Stocks	Bonds	Cash	Typical use case
Conservative	30–40%	50–60%	5–10%	Shorter time horizon, low tolerance for volatility, focus on capital preservation.
Balanced	50–65%	30–45%	0–5%	Medium time horizon, moderate risk tolerance, mix of growth and stability.
Growth	75–90%	10–25%	0–5%	Long time horizon, higher tolerance for volatility, focus on long-term growth.

These are broad ranges, not prescriptions. You might decide that 70% stocks and 30% bonds is the right point for you – at the aggressive end of “balanced”, or the conservative end of “growth”. The point is to think in terms of ranges and risk levels rather than exact single numbers.

Practical tip: imagine how each portfolio would feel during a severe market downturn – for example, a 30–40% drop in stocks. If you know you would not sleep at night with a growth mix in that scenario, it may be better to aim for a balanced allocation.

Implementing asset allocation with funds and ETFs

Once you have chosen a target mix, the next step is implementation. You do not need dozens of positions. Many investors use a small set of broad funds or ETFs to cover large parts of the market, as we describe on ETF Basics.

For example, a balanced portfolio might be built using:

A broad domestic stock-market ETF.
An international stock-market ETF.
A core bond ETF.

If your target is 60% stocks and 40% bonds, you might allocate 40% to the domestic stock ETF, 20% to the international stock ETF and 40% to the bond ETF. The exact split between domestic and international stocks is a preference; the key is the overall stock/bond mix.

Dollar-cost averaging, covered in our guide on Dollar-Cost Averaging, fits naturally here. You can set up regular contributions into each ETF in proportion to your target allocation.

Rebalancing: keeping your portfolio on track

Markets move, and so will your allocation. After a strong stock-market run, your portfolio might drift from 60% stocks and 40% bonds to 70% stocks and 30% bonds. Rebalancing is the process of nudging the portfolio back toward its target mix.

There are two common approaches:

Calendar-based rebalancing: check your allocation once or twice a year and adjust if it has drifted too far.
Threshold-based rebalancing: rebalance only when a major asset class moves outside a chosen band (for example, more than 5 percentage points away from target).

Rebalancing can be done by:

Directing new contributions to the underweight asset class.
Shifting money between funds – selling some of what has grown faster and adding to what is now underweight.

The key is to have a simple rule written down. That reduces the temptation to treat rebalancing as market timing. On Investing 101 we suggest including rebalancing guidelines in your personal investing plan.

How your allocation can change over time

Your asset allocation does not need to stay the same forever. Many investors follow a glide path, gradually shifting from growth-oriented mixes toward more conservative ones as major life goals approach.

A simplified example might look like this:

Stage	Approximate age	Typical mix	Comments
Early accumulation	20s–30s	70–90% stocks, 10–30% bonds/cash	Focus on growth, long time horizon, capacity to ride out volatility.
Mid-career	40s–50s	50–70% stocks, 30–50% bonds/cash	Balance between growth and risk as retirement gets closer.
Pre-retirement and early retirement	60s+	40–60% stocks, 40–60% bonds/cash	Greater focus on stability and income while still allowing for some growth.

These ranges are examples, not rules. On our Retirement Investing Basics page, we look more closely at how allocation decisions interact with retirement timing and withdrawal needs.

Mini case study: choosing a workable mix

Consider two investors, Sam and Taylor. Both are 40 years old, planning to retire around 65, and have similar incomes. They are trying to choose between a balanced and a growth allocation.

After reading Investing 101 and Risk, Return and Diversification, they each write down how they felt during past market downturns and what kind of decline would make them seriously consider changing course.

Sam realises that a 25–30% portfolio drop would cause a lot of stress and make it hard to stick to the plan. Sam chooses a balanced allocation: 60% stocks and 40% bonds, implemented with a mix of broad ETFs.
Taylor has seen a few downturns already, did not sell during the last one, and feels comfortable with more volatility. Taylor chooses a growth allocation: 80% stocks and 20% bonds, acknowledging that this could mean deeper temporary drops but also higher expected returns over 25 years.

Both decisions are reasonable. The important part is that Sam and Taylor chose intentionally, based on their own situation, and committed to rebalancing and regular contributions. They are not chasing the “perfect” mix – they are choosing a workable mix.

Common mistakes with asset allocation

A few patterns come up again and again:

Changing allocation too often: jumping between conservative and aggressive mixes based on short-term news.
Being aggressive on paper, conservative in behaviour: choosing a growth mix but selling to cash during every downturn.
Ignoring bonds and cash: assuming that 100% stocks is always best without considering risk tolerance or time horizon.
Overcomplicating the portfolio: holding too many overlapping funds instead of a small, clear set of building blocks.
Never rebalancing: allowing the portfolio to drift so far from its target that risk creeps higher or lower without a conscious decision.

Checklist: write down your target allocation, your rebalancing rule and what would make you change that target. Refer back to this document before making big shifts after market moves.

Asset allocation – FAQs

How often should I change my asset allocation?

For most long-term investors, major allocation changes are rare. It can make sense to review your target mix every few years or after major life events (such as marriage, children, a new job or a big change in income). Day-to-day market moves are not a good reason to overhaul your plan.

Is there a “best” stock/bond split?

No. Rules of thumb like “100 minus your age in stocks” can be starting points, but not destinations. Your own mix should reflect your goals, time horizon, risk tolerance and risk capacity. The examples on this page are meant to guide your thinking, not to prescribe a specific answer.

Can I use a single balanced fund or ETF instead?

Many providers offer balanced or “all-in-one” ETFs that hold a diversified mix of stocks and bonds inside a single fund. These can be a good option if you want the simplicity of one holding. You still need to choose the risk level – conservative, balanced or growth – but the fund handles the underlying allocation and rebalancing for you.

How does dollar-cost averaging fit into this?

Dollar-cost averaging, covered in our DCA guide, is about how you add money to your portfolio over time. Asset allocation is about where that money goes (stocks vs bonds vs cash). The two work together: you can DCA into a portfolio that follows your chosen allocation, then rebalance periodically.